GBP/CAD firms as BoE delivers a cautious rate cut

The British Pound (GBP) edges higher against the Canadian Dollar (CAD) on Wednesday, reversing earlier losses as markets digest the Bank of England’s (BoE) latest monetary policy decision. At the time of writing, GBP/CAD trades near 1.8478, rebounding from a daily low around 1.8384.

The BoE cut the Bank Rate by 25 basis points to 3.75%, marking its lowest level since 2022. While the move itself was widely anticipated, investors focused on the narrow 5-4 vote split, with four policymakers opting to keep rates unchanged at 4.00%, highlighting growing divisions within the Monetary Policy Committee (MPC)over the pace of easing.

Explaining the decision, the BoE noted that CPI inflation has fallen to 3.2% since the previous meeting and, while still above the 2% target, is now expected to move closer to target more quickly in the near term. Policymakers said the extent of further easing will depend on how the inflation outlook evolves, adding that, based on current evidence, Bank Rate is likely to follow a gradual downward path, though future decisions are becoming a closer call.

BoE Governor Andrew Bailey said recent data indicate that disinflation is becoming more firmly established, with headline inflation easing from its peak and upside risks diminishing. He added that Budget measures should help bring inflation down further in the near term, while rising unemployment and underemployment point to increasing slack in the economy.

Looking ahead, Bailey said there is scope for some additional policy easing, but stressed that the future path of Bank Rate cannot be pre-judged, particularly as interest rates move closer to a neutral level.

Despite the rate cut, the BoE’s cautious tone tempered expectations for an aggressive easing cycle, helping the Pound as traders pared back rate-cut bets for next year.